March 28, 2017 | Policy Brief

U.S. Arrests Senior Turkish Banker for Sanctions-Busting

U.S. authorities arrested Mehmet Hakan Atilla, the deputy CEO of Turkey’s public lender Halkbank, upon his arrival in New York, according to news reports today. Atilla was reportedly wanted for the bank’s role in evading U.S. sanctions against Iran. The news of the arrest comes two days ahead of U.S. Secretary of State Rex Tillerson’s visit to Turkey, and promises to complicate talks with Ankara. The incident is also likely to hurt Turkey’s banking sector and exacerbate the nagging economic challenges that have only worsened since the failed coup attempt last year.

Atilla’s arrest is directly connected to the high-profile case of Turkish-Iranian sanctions-buster Reza Zarrab, whose trial in New York is set to begin in August. Infamous for his close ties to the Turkish ruling elite, Zarrab had first made headlines in Turkey in 2012 for a gas-for-gold scheme that yielded Tehran some $13 billion in gold from semi-accessible escrow accounts that had been designed to limit Iran’s ability to access cash from oil sales. He made headlines again in a massive corruption scandal in 2013 and 2014, much of which was detailed in a leaked Istanbul prosecutor’s report, which involved several Turkish ministers and threatened the ruling Justice and Development Party (AKP) government. The graft scandal had also implicated Turkish President Recep Tayyip Erdogan’s immediate family.

Both schemes pointed to a large network of individuals and businesses that helped Iran evade international sanctions designed to curb Tehran’s nuclear program, and made hefty profits in the process. They also implicated Turkey’s state-owned Halkbank for processing illicit transactions. In fact, in December 2013, Halkbank’s CEO Suleyman Aslan was arrested and charged with taking bribes. Police reportedly found more than $4 million in shoe boxes in Aslan’s home. Aslan was later released and briefly worked on the board of Turkey’s state-owned Ziraat Bank.

While the Turkish government successfully quashed all inquiry into the two schemes, the arrest of Reza Zarrab in the United States in March of last year has spooked Ankara. Erdogan publicly declared that he sees “ulterior motives” in the case and has a personal stake in Zarrab’s release. In a closed meeting in November, Turkey’s Justice Minister Bekir Bozdag reportedly asked his U.S. counterpart former Attorney General Loretta Lynch to release Zarrab.

Atilla’s arrest today, however, indicates that the U.S. probe into Iranian sanctions-busting is only likely to expand in scope. This will likely complicate bilateral relations already strained by the rampant anti-Americanism in Turkey’s government-funded media, which blamed Washington for the failed coup d’etat in July of last year. And while Tillerson will likely try to focus the conversation on U.S.-Turkish cooperation in fighting the Islamic State, he might now find his Turkish colleagues more interested in the U.S. justice system and its choice of targets. Doing so, however, will only underscore the extent to which the Turkish government and public lenders have been accessory to Iranian efforts to circumvent U.S. sanctions.

Aykan Erdemir is a former member of the Turkish parliament and a senior fellow at the Foundation for Defense of Democracies, where Merve Tahiroglu is a research associate. Follow them on Twitter @aykan_erdemir and @MerveTahiroglu.